Performance Management and Appraisal

Chapter 9

Performance Management and Appraisal

Learning Objectives:

1.Describe the appraisal process.

2.Define performance management and discuss how it differs from performance appraisal.

3.Develop, evaluate, and administer at least four performance appraisal tools.

4.Explain and illustrate the problems to avoid in appraising performance.

5.Perform an effective appraisal interview.

6.Explain how to “segment” employees for appraisal and reward purposes.

Annotated Outline:

I.The Basics of Performance Management and Appraisal

A.The Performance Appraisal Process -Stripped to its essentials, performance appraisal always involves the 3-step performance appraisal process:

(1) Setting work standards;

(2) Assessing the employee’s actual performance relative to those standards, which usually involves some rating form; and

(3) Providing feedback to the employee with the aim of helping him or her to eliminate performance deficiencies or to continue to perform above par.

B.Why Appraise Performance? - For several reasons:

1) Many employers still base pay, etc. on employee appraisals;

2) Appraisals play an integral role in the employer's performance management process;

3) The appraisal lets the boss and subordinate develop a plan for correcting any deficiencies, and reinforce those things the employee does correctly;

4) They serve a useful career planning purpose; and

5) Appraisals play a role in identifying training and development needs.

C.Performance Managementincludes continuously adjusting how an organization and its team members do things. Team members who need coaching and training receive it, and procedures that need changing are changed.

D.Using Information Technology to Support Performance Management - Many companies use information technology to automate performance management and to monitor feedback, and to correct deviations in real time.

E.Defining the Employee's Goals & PerformanceStandards -At the heart of performance management is the idea that employees’ effort should be goal directed, which involves clarifying expectations and quantifying them by setting measurable standards for each objective. Some guidelines for effective goal setting are:

1. Assign specific goals;

2. Assign measurable goals;

3. Assign challenging but doable goals; and

4. make sure the goals are relevant, and

5. Timely.

F.Who Should Do the Appraising?

1.The immediate supervisor is at the heart of the appraisal process. However, it does not stop with him or her.

2.Peer Appraisals – Becoming more popular with firms using selfmanaging teams.

3.Rating Committees – Consist of multiple raters, typically the employee’s immediate supervisor and three or four other supervisors.

4.Self-Ratings – Tend to be higher than supervisor or peer ratings.

5.Appraisal by Subordinates – Also known as upward feedback. It is where subordinates anonymously rate their supervisor’s performance.

6.360-Degree Feedback – Ratings are collected from the employee’s supervisors, subordinates, peers, and internal or external customers. This method is the subject of considerable debate. One study found significant correlation between 360-degree ratings and conventional ratings. Firms should carefully assess potential costs, carefully train those giving feedback, and not rely solely on 360-degree feedback.

II.Techniques for Appraising Performance

A.Graphic Rating Scale Method– It isthe simplest and most popular performance appraisal technique. A scale is used to list a number of traits and a range of performance for each, then the employee is rated by identifying the score that best describes his/her performance level for each trait. Managers must decide which job performance aspects to measure. Some options include generic dimensions, actual job duties, or behaviorally recognizable competencies.

B.Alternation Ranking Method– Employees are ranked from best to worst on a particular trait, choosing highest, then lowest, until all are ranked.

C.Paired Comparison Method– It involves ranking employees by making a chart of all possible pairs of employees for each trait and indicating which one is the better employee of the pair.

D.Forced Distribution Method– Predetermined percentages of rates are placed in various performance categories, which is similar to grading on a curve.

E.Critical Incident Method– A supervisor keeps a record of uncommonly good and/or undesirable examples of an employee’s work-related behavior, and reviews the record with the employee at predetermined times.

F.Narrative Forms– The method involves rating the employee’s performance for each performance factor, writing down examples and an improvement plan, aiding the employee in understanding where his/her performance was good or bad, and summarizing with a focus on problem solving.

G.Behaviorally Anchored Rating Scales (BARS) – A method that combines the benefits of narratives, critical incidents, and quantified scales by anchoring a scale with specific behavioral examples of good or poor performance. The five steps in developing a BARS are: 1) generate critical incidents; 2) develop performance dimensions; 3) reallocate incidents; 4) scale the incidents; and 5) develop a final instrument. The advantages of BARS include a more accurate gauge, clearer standards, feedback, independent dimensions, and consistency.

H.Mixed Standard Scales – These are similar to BARS but generally list just 3 behavioral examples or standards for each, of 3, performance dimensions.

I.Management by Objectives (MBO)– The manager sets specific measurable goals with each employee and then periodically discusses the employee’s progress toward these goals. The process consists of six steps: 1) set the organization's goals;

2) Set departmental goals;

3) Discuss departmental goals;

4) Define expected results;

5) Conduct performance reviews; and

6) Provide feedback.

J.Computerized and Web-Based Performance Appraisal– This methodgenerally enables managers to keep notes on subordinates during the year, to rate employees on a series of performance traits, and then generate written text to support each part of the appraisal. About 1/3 of employers use online performance management tools for at least some employees.

K.Electronic Performance Monitoring – These systems use computer network technology to allow managers access to their employees’ computers and telephones.

III.Dealing with Rater Error Appraisal Problems - It can be difficult to rate performance for several reasons. Much depends on a good rating, including career progress, or being able to obtain a raise. There are also technical problems that can affect the fairness of the process.

A.Potential Rating Problems:

1.Unclear Standards – Ambiguous traits and degrees of merit can result in an unfair appraisal.

2.Halo Effect – The influence of a rater’s general impression on ratings of specific qualities can be a problem.

3.Central Tendency – This occurs when supervisors stick to the middle of the rating scales, thus rating everyone average.

4.Leniency or Strictness – Supervisors have the tendency to rate everyone either high or low.

5.Regency Effects – This involves letting what the employee has done recently blind the manager to the employee’s performance over the rest of the year.

6.Bias – The tendency to allow individual differences such as age, race, and sex affect employee appraisal ratings is a problem.

B.Guidelines for Effective Appraisals – Appraisal problems can be more effective by following these five things:

1) Know the problem;

2) use the right appraisal tool;

3) keep a diary;

4) Get agreement on a plan and;

5) Be fair.

IV.Managing the Appraisal Interview – The supervisor and subordinate review the appraisal and make plans to remedy deficiencies and reinforce strengths.

A.How to Conduct the Appraisal Interview - Prepare for the interview by assembling the data, preparing the employee, and choosing the time and place. Be direct and specific, using objective examples; don’t get personal; encourage the person to talk; and reach agreement.

B.How to Handle a Defensive Subordinate - Recognize that defensive behavior is normal; never attack a person’s defenses; postpone action; and recognize your own limitations.

C.How to Criticize a Subordinate - When required, criticize in a private and constructive manner that lets the person maintain his/her dignity and sense of worth.

D.How to Handle a Formal Written Warning - Written warnings should identify the standards by which the employee is judged, make it clear that the employee was aware of the standard, specify any violation of the standard, and show that the employee had an opportunity to correct the behavior.

V.Talent Management and Employee Appraisal

A.Appraising and Actively Managing Employees – Talent management requires actively managing decisions like these. The point is that the traditional practice of allocating pay raises, development opportunities, and other scarce resources across the board or based just on performance makes less sense than it used to. Today, employers also need to focus their attention and resources on their company’s mission-critical employees, who are essential to the firm’s strategic needs.

B.Segmenting and Actively Managing Employees in Practice – Examples are discussed of organizations who actively manage their employees.

Discussion Questions:

9-5: What is the purpose of a performance appraisal?

The purpose of a performance appraisal is to provide employees with feedback on how they are doing, as well as give them an opportunity to give feedback.

9-6: Should the appraisal process concentrate on past performance, future performance, or both? Give reasons for your answer.

Appraisals by the immediate supervisor are still the heart of most appraisal processes, however, with more firms using self-managing teams, appraisal of an employee by his or her peers—peer appraisal—is popular, as is 360° feedback. With 360-degree feedback, the employer collects performance information all around an employee—from his or her supervisors, subordinates, peers, and internal or external customers—generally for developmental rather than pay purposes. Some employers obtain employees’ self-ratings, usually in conjunction with supervisors’ ratings. Many employers even have subordinates rate their managers, usually for developmental rather than for pay purposes. Anonymity affects the feedback.

9-7: What is a critical incident, and how can it help improve performance?

These are negative or positive examples of an employee’s work-related behaviour that can be used to aid discussion of past performance. It can help improve performance by focussing on incidents throughout the year (instead of just the most recent) which can be used to explain performance ratings at appraisals.

9-8: Explain management by objectives, and suggest some benefits and drawbacks of this process.

Management by objectives involves the setting up of a company-wide goal-setting and appraisal programme. Managers set specific measurable and relevant goals with each employee, and then periodically discuss the latter’s progress toward these goals. However, it is not suitable for all companies. It would be appropriate for a knowledge-based company where roles involve a high level of empowerment rather than a high level of supervision. In this situation it could encourage teams to manage themselves and therefore promote creativity and innovation. The results orientated nature of MBO could also be useful to manage the performance of senior managers.

9-9: Explain in your own words how you would go about developing a behaviorally anchored rating scale.

Each student should express the five steps in his or her own words. Those five steps are: 1) generate critical incidents; 2) develop performance dimensions; 3) reallocate incidents; 4) scale the incidents; and 5) develop a final instrument.

9-10: Explain the problems to be avoided in appraising performance.

The five main rating scale problems listed in the text are: 1) unclear standards; 2) halo effect; 3) central tendency; 4) leniency or strictness; 5) regency effects; and 6) bias.

9-11: Identify and explain the problems in performance ratings.

Unclear standards: A rating scale that uses definitions like creativity and quality can be open to interpretation. Managers can also have different ideas about what constitutes “good”, “satisfactory” or “excellent” performance.

Halo effect: A manager’s impression of the personality of an employee can influence their judgment of their work abilities.

Central tendency: There can be a tendency to rate the majority of employees as average or satisfactory.

Leniency or strictness: Conversely some managers rate employees either high or low.

Recency effect: Recent achievements by an employee can impress managers more than performance over the year as a whole.

Key terms:

Performance Appraisal - Evaluating an employee’s current and/or past performance relative to his or her performance standards.

Performance Appraisal Process - A 3-step appraisal processing involving (1) setting work standards, (2) assessing the employee’s actual performance relative to those standards, and (3) providing feedback to the employee with the aim of helping him or her to eliminate performance deficiencies or to continue to perform above par.

Performance Management - Managing all elements of the organizational process that affect how well employees perform.

Graphic Rating Scale - A scale that lists a number of traits and a range of performance for each. The employee is then rated by identifying the score that best describes his or her performance for each trait.

Alternation Ranking Method - Ranking employees from best to worst on a particular trait, choosing highest, then lowest, until all are ranked.

Paired Comparison Method - Ranking employees by making a chart of all possible pairs of the employees for each trait and indicating which is the better employee of the pair.

Forced Distribution Method - Similar to grading on a curve; predetermined percentages of rates are placed in various performance categories.

Critical Incident Method - Keeping a record of uncommonly good or undesirable examples of an employee's work-related behavior and reviewing it with the employee at predetermined times.

Behaviorally Anchored Rating Scale (BARS) - An appraisal method that aims at combining the benefits ofnarrative and quantified ratings by anchoring a quantified scale with specific narrative examples of good and poor performance.

Electronic Performance Monitoring (EPM) - Having supervisors electronically monitor the amount of computerized data an employee is processing per day, and thereby his or her performance.

Unclear Standards - An appraisal scale that is too open to interpretation.

Halo Effect - In performance appraisal, the problem that occurs when a supervisor's rating of a subordinate on one trait biases the rating of that person on other traits.

Central Tendency - A tendency to rate all employees the same way, such as rating them all average.

Strictness/Leniency - The problem that occurs when a supervisor has a tendency to rate all subordinates either high or low.

Bias - The tendency to allow individual differences such as age, race, and sex to affect the appraisal rates these employees receive.

Appraisal Interviews - An interview in which the supervisor and subordinate review the appraisal and make plans to remedy deficiencies and reinforce strengths.